peHUB Wire: Friday, May 22, 2009

Mark to (Secondary) Market: Nevermind!

Accounting may bore some to tears, but it remains a hot button issue in the world of private equity thanks to markdown pain on the GP side and inconsistencies in implementation for LPs.

Making matters worse, most attempts to clarify the situation have only served to muddy it more. In January, the AICPA released a controversial draft issues paper that provided guidance on how to estimate fair value in relation in NAV (net asset value). It asserted that PE firms should write down a fund if it is traded at a discount in the secondary market, since that’s a tangible transaction to go by. This obviously ruffled a few feathers, since distressed LPs have been selling chunks of perfectly healthy buyout funds at greater than 50% discounts on the secondary market.

But it appears the concerns you all voiced at the time haven’t fallen on deaf ears. According to board meeting minutes from earlier this month, the AICPA has pulled back from this assertion, allowing LPs to use the state NAV assigned by the GP. As one LP put it, “They’re essentially saying forget the whole thing!” That’s good news.

However, the Board did indicate that LPs will need to disclose the estimated remaining life of their investments, as well as the amount and timing of remaining capital calls. In other words, predict the future. FASB expects to issue a new draft FSP today, with a 30 day comment period, according to the board meeting minutes.

In the meantime, secondary market advisor Cogent Partners has released a bulletin on the topic, which applauds the revisions to the original draft paper but raises a few more questions. Like, what does an LP do if the financial reporting deadline falls before the arrival of the corresponding quarterly fund financials? Or, what additional fund monitoring demands will LPs need to comply with from auditors?

As much as GPs bemoan the horrors of mark-to-market, it’s not going to go away. The good news is, with gradual revisions, additions, a little trial-and-error, and a lot of complaining, it’s slowly moving in the right direction.

You can download the Cogent bulletin here.

***Programming Note: Monday is a holiday, so there will be no peHUB. We’ll return on Tuesday. Enjoy the long weekend!

***Also: Dan is on vacation for one more week. Email press releases, tips, or comments to

Top Three

U.S. bank regulators seized troubled Florida lender BankUnited FSB and sold it to Wilbur Ross’s WL Ross & Co, Carlyle Group, Blackstone Group, and Centerbridge Partners. The firms are paying $900 million. The failure is the largest this year, and will cost the Federal Deposit Insurance Corp (FDIC) an estimated $4.9 billion.

The Federal Deposit Insurance Corporation said it would soon provide guidelines for future prviate equity investments in bank holding companies in its announcement that a consortia of buyout firms would take control of BankUnited FSB.

Shares of OpenTable Inc (OPEN.O) closed their first trading session up 59 percent on Thursday following the restaurant reservation company’s initial public offering, in the best first day performance for a U.S. company in over 18 months. OpenTable received venture backing from Benchmark Capital, Impact Venture Partners, and Integral Capital Partners.

VC Deals

Century Capital Partners has made an undisclosed growth investment in Digital Risk, a mortgage mitigation service provider based in Orlando. Boxwood Partners advised Digital Risk on the investment.

Sagent Pharmaceuticals, Inc., a specialty pharmaceutical company based in Schaumburg, Ill.,raised $30 million in a second Series A financing extension with pre-existing and new strategic investors. The round was led by Vivo Ventures.

OwnEnergy Inc., a wind development company based in New York, recently closed an addition to its Series A round from two new investors: Clearpoint Ventures and GoGreen Capital. The company also hired Ray Henger, formerly a Managing Director in Credit Suisse’s US Power and Renewables Group, as its finance director, and Chip Readling, former Director of Development at Noble Environmental Power, as its senior project manager.

SpectraSensors, Inc., a Houston, Texas-based supplier of optical sensors, has raised more than $6M in new financing from current and new investors. Investors participating include Blueprint Ventures, Nth Power, American River Ventures, Nomura Private Equity Investment, and Chevron Technology Venture Investments.

Clovis Oncology, a developer of anti-cancer agents based in Boulder, Colo., secured $145 million in financing from Domain Associates, New Enterprise Associates (NEA), Versant Ventures, Aberdare Ventures, Abingworth, Frazier Healthcare Ventures, ProQuest Investments and the Company’s management team.

Buyout Deals

British bank Barclays has sidelined private equity houses bidding for iShares, its exchange-traded fund unit, and is looking to sell its entire asset management arm instead if offers approach $12 billion.

Reuben Brothers have put in a 40 million pound ($63.18 million) bid to acquire Premium Bars & Restaurants (PBR), The Times said.

Borders UK, the bookshop chain owned by private equity firm Risk Capital Partners, has appointed restructuring experts RSM Bentley Jennison to advise on closing underperforming stores, The Independent reported.

Two senior lenders have opposed the proposed debt-swapset forth by Clear Channel Communications, the New York Post reported. Clear Channel is backed by THL Partners and Bain Capital.

NCI Building Systems, a non-residential building products maker based in Houston, announced it is in talks with “a leading private equity firm with regard to a substantial equity investment” in the company.

Two bidders remain in the running to buy Dutch waste manager Essent Milieu, and are likely to submit final offers of less than 700 million euros ($965 million) in the coming days, Reuters reported. .

PE-Backed IPOs

NextG Networks, a wireless networking company based in San Jose, Calif., withdrew its plans for an IPO.The company has raised more than $64 million in VC funding, from firms like Oak Investment Partners (26.9%) and Gabriel Venture Partners (14.5%).

PE-Backed M&A

H.I.G. Capital, based in Miami, acquired digital motion picture and post-production companies PostWorks and subsidiary Orbit Digital, Inc., as an addition to its Telecorps Holdings family of companies, which includes Wexler Video and Coffey Sound.

Firms & Funds

Neuberger Berman LLC Chief Executive George Walker, is the latest Wall Street executive to beg off the government’s toxic asset purchase program.

Kohlberg Kravis Roberts & Co KKR.UL may take advantage of the U.S. government’s infrastructure stimulus plan but is not as keen on buying banks or their troubled assets, the private equity firm’s co-founders Henry Kravis and George Roberts told the Financial Times.

Apria Healthcare Group Inc, an indirect subsidiary of private equity firm Blackstone Group Inc (BX.N), on Thursday sold $700 million of 10-year senior notes in the 144a private placement market, said IFR, a Thomson Reuters service.

Canada Pension Plan Investment Board said on Thursday the value of its assets under management shrank 14 percent in fiscal 2009, which ended March 31.

The New York State Teachers Retirement System said on Thursday it adopted pay-to-play curbs in a conduct code the state attorney general devised in a settlement with The Carlyle Group.

Human Resources

Michael Holmberg, formerly of Newberry Capital Management, has joined Neuberger Berman’s distressed credit team.

Edward Liddy, CEO of AIG, plans to step down. He had planned for his stay at the company to be temporary.

Evercore Partners Inc has named BlackRock Inc’s co-founder Ralph Schlosstein as its chief executive, replacing Roger Altman. Altman will remain chairman. Schlosstein has also become a partner in Evercore and bought $15 million of its equity.